CIT vs. Bengal Finance & Investments Pvt. Ltd (Bombay High Court)- 5 Jan 2018
1- In the case of M/s.Essar Teleholdings Ltd. v. DCIT in which it has been held that the amount disallowed u/s 14A cannot be added to the amount of book profit u/s 115JB. In this order it has been laid down that unless a particular expenditure is debited to the profit and loss account relating to the earning of exempt income, the same cannot be imported into the computation of book profit as clause (f) of Explanation 1 to section 115JB which only refers to the amount debited to the profit and loss account,
2- one more order passed by the Delhi Bench in the case of Quippo Telecom Infrastructure Ltd. v. ACIT in ITA No.4931/Del/2010 in which it has been reiterated that the amount disallowed u/s 14A cannot be considered while computing book profit u/s 115JB of the Act,
3- Starting point for computing book profit u/s 115JB is the amount of net profit as disclosed by Profit and loss account. Only the items enumerated in Explanation 1 to section 115JB are required to be increased for determining the book profit. There is no reference to increasing the amount of net profit by the prior period expenses in Explanation 1 to section 115JB. In view of these facts, we are of the considered opinion that the learned CIT(A) was justified in directing accordingly.
4- While arriving the Book Profit u/s. 115JB, the AO added proportionate finance charges of Rs. 4.06 crores related to exempt income u/s. 10(34) of the Act. During the year, the assessee company has not received any dividend or any income in respect of investment of shares which is exempt or otherwise does not form part of total income. The AO therefore erred in adding the proportionate finance charges of Rs. 4.06 crores related to exempt income u/s. 10(34) of the Act, while computing the Book Profit u/s. 115JB of the I.T. Act.
5- Further, no actual expenditure was debited in the profit & loss account relating to the earning of exempt income. Therefore the provisions of Sec. 14A cannot be imported into while computing the book profit u/s. 115JB of the Act inasmuch as clause (f) of Explanation to Sec. 115JB refers to the amount debited to the profit & loss account which can be added back to the book profit while computing book profit u/s. 115JB of the Act.
For reading full text of the case please refer - http://itatonline.org/archives/cit-vs-bengal-finance-investments-pvt-ltd-bombay-high-court-s-14a-115jb-amount-disallowed-u-s-14a-of-the-act-cannot-be-added-to-arrive-at-book-profit-for-purposes-of-section-115jb-of-the-act/bengal-finance-14a-115jb/
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Some of the important points of the case (for easy references):
1- In the case of M/s.Essar Teleholdings Ltd. v. DCIT in which it has been held that the amount disallowed u/s 14A cannot be added to the amount of book profit u/s 115JB. In this order it has been laid down that unless a particular expenditure is debited to the profit and loss account relating to the earning of exempt income, the same cannot be imported into the computation of book profit as clause (f) of Explanation 1 to section 115JB which only refers to the amount debited to the profit and loss account,
2- one more order passed by the Delhi Bench in the case of Quippo Telecom Infrastructure Ltd. v. ACIT in ITA No.4931/Del/2010 in which it has been reiterated that the amount disallowed u/s 14A cannot be considered while computing book profit u/s 115JB of the Act,
3- Starting point for computing book profit u/s 115JB is the amount of net profit as disclosed by Profit and loss account. Only the items enumerated in Explanation 1 to section 115JB are required to be increased for determining the book profit. There is no reference to increasing the amount of net profit by the prior period expenses in Explanation 1 to section 115JB. In view of these facts, we are of the considered opinion that the learned CIT(A) was justified in directing accordingly.
4- While arriving the Book Profit u/s. 115JB, the AO added proportionate finance charges of Rs. 4.06 crores related to exempt income u/s. 10(34) of the Act. During the year, the assessee company has not received any dividend or any income in respect of investment of shares which is exempt or otherwise does not form part of total income. The AO therefore erred in adding the proportionate finance charges of Rs. 4.06 crores related to exempt income u/s. 10(34) of the Act, while computing the Book Profit u/s. 115JB of the I.T. Act.
5- Further, no actual expenditure was debited in the profit & loss account relating to the earning of exempt income. Therefore the provisions of Sec. 14A cannot be imported into while computing the book profit u/s. 115JB of the Act inasmuch as clause (f) of Explanation to Sec. 115JB refers to the amount debited to the profit & loss account which can be added back to the book profit while computing book profit u/s. 115JB of the Act.
For reading full text of the case please refer - http://itatonline.org/archives/cit-vs-bengal-finance-investments-pvt-ltd-bombay-high-court-s-14a-115jb-amount-disallowed-u-s-14a-of-the-act-cannot-be-added-to-arrive-at-book-profit-for-purposes-of-section-115jb-of-the-act/bengal-finance-14a-115jb/
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